>> live from pier 3 in san francisco, welcome to "bloomberg west." i'm cory johnson. u.s. stocks down, the largest swing since october. the dow was up as many as 282 points and then down as low as 143 points before closing down for the a slightly. -- the day. shares of homebuilders and energy companies taking hits particularly hard. gamestop is giving clues on how holiday shopping season went. the retailer says that sales rose 5.8% in the fourth quarter

driven by playstation 4 and xbox one titles. consuls were down 32%. go pro shares down big today, losing more than 12% today. this was after apple was granted a patent for a remote-controlled camera system, leading some to believe apple will create a go pro competitor. the patent application specifically mentions go pro and hd camera that is resistant to damage. -- susceptible to damage. last night's national college championship game was the most-watched cable program ever. more than 33 million people watched ohio state beat oregon. it earned espn ratings of 31%. -- up 31% from last year's title game.

now after the hacking of sony home depot, target, jpmorgan you name it -- present obama is sick of it. he is renewing his cyber security law. the long stalled bill would encourage companies to share information with the government. in exchange, they would be shielded from liability. here he is speaking in arlington, virginia. at the national cyber security integration center. >> our financial systems, power grids, pipelines, fuel systems run on networks connected to the internet. this is a matter of public safety and public health, and most of this infrastructure is owned and operated by the private sector. so, neither government nor the private sector can defend the nation alone. it's going to have to be a shared mission. government and industry working hand-in-hand as partners. >> the president is also proposing to prosecute botnets

and give powers to shut down those involved in fraudulent activities. joining us to discuss the enhancement to security, our guest. eric, let me start with you. the proposal i'll be president, is that what is needed to fight cyber crime? >> currently, we have various information sharing communities that are already in the private sector, helping to share information. the legislation being re-proposed, cispa, is to help the government. this would do nothing to stop something like the sony hack. it is really more to help cyber security problems in the government by enabling data access into the private sector. >> i wonder, erik, just the fact that they are sharing information, will compel the companies to take this more seriously and have a standard set of rules when attacks happen?

>> i do not see this legislation at all enacting that. i think there is separate legislation that could happen to drive that agenda. but cispa in its current form, really, i do not think will provide a lot of improvement in the private sector. >> robert, what do you think? >> i totally agree. i would offer a couple additional comments. there are unintended consequences when you have this kind of legislation. loss tend to be poorly written. one example, the computer fraud abuse act has restricted our ability in the computer security industry to do certain types of investigations -- >> let me unpack that a little bit. how so? >> it has made it difficult for us to do broad scale scanning of the internet to see what is vulnerable. there are projects that are attempting to do exactly that. they are meeting with resistance from certain groups that believe

they should not be able to do that kind of thing. >> erik, it's been 4 years now. this bill, in various forms, has not passed. is anything different now that would help get this through congress? >> not really. there are minor changes here and there. but the reason why this bill has been proposed then rejected again and again, is because privacy advocates are making the point that this essentially warrantless surveillance. the concept is cispa is trying to get all the information form from -- from the private sector to the federal government, so that when cyber crime happens, there is no process for warrants to go grab that information. the federal government can instantly correlate all the data and enact on it. i think that's great to enable law enforcement to be more agile. but, the way it is currently implemented gives all the data to the goverment. i would love to see some sort of privacy masking of the data. so then, the data is retained, but in encrypted form. then the government has to get a

warrant to de-crypt or access the data and correlate it. collect the data, but don't collect it in a completely unencrypted manner. >> the notion after the snowden leaks, to see what the nsa was doing with warrantless wiretapping and so on, it seems unlikely that people are going to be really thrilled to turn in their credit card information, their shopping data, every thing else to the federal government. >> yeah, absolutely not. also this has the ability to allow companies to masquerade data sharing as investigations which -- we already sort of have the problem of large organizations spying and using that data to market. it would be very difficult to prove if something was purely an investigation are being used for -- or is being used for another purpose.

even with masking, which is a great idea, there are still other ways you can use this metadata we have all heard about to derive information about the u.s. populace. >> all right, robert and erik, thank you very much. breaking news i want to get to. the online crafting marketplace etsy is crafting a deal to go public. it is a website that focuses on crafts. leslie picker has just broken the story here he joins me from new york. this is fascinating. what can you tell us about the deal? >> what we have learned so far as they are working with goldman sachs and morgan stanley on a deal. this ipo could raise $300 million. pretty sizable. we might have a battle of the companies east coast, versus west coast. so far 2015, the east coast is winning. >> tupac versus biggie? i don't think this is going down.

to raise $300 million, would be a large stock. with the private valuation of over a billion dollars? >> exactly. when you talk about the average float size -- we're talking about an ipo of 15%. that is at $2.5 billion valuation for this company. it is sizable. when you look at their business model, a kind of resonates where -- with where alibaba was. a platform for small businesses. individuals making a profit selling on their site, which of course is easy to scale. that is their appeal. their ceo told bloomberg news back in 2013 it is profitable. we've not seen their financial sense then, but if they are profitable, that could also be a plus. >> bloomberg news reporter leslie picker, thank you very much. shoppers dancing in the aisles for the first dotcom boom, but was it a bust?

but has instant card figured out the key to making profits in local delivery? ♪

>> i'm cory johnson. this is "bloomberg west." the grocery delivery instacart has raised more than $2 million. but with competition from tech gianst like amazon and google and the ghost solve grocery store deliveries past, what makes instacart different? we find out. >> grocery shopping is getting an overhaul. a number of companies are going into the business, notably instacart. rather than try the app, i decided to try. >> a little overdressed. >> i can handle that. >> the app is the simple part. pull, select your groceries, hit order.

behind the scenes, it is complicated. they partner with stores like all foods and costco. -- whole foods and costco. they stroll he aisles, poke the produce, scan each item as they go. making sure they get the right stuff. they make money by charging $4 to $6 per quarter and sometimes -- per order and sometimes charging more if they actually went to the store. they operate in 15 markets and is growing quickly. dotcom history is littered with the wreckage of failed delivery concepts, but this uber-like smartphone powered outsourced model may give them a better ending. >> thank you very much. >> all right, so i have got something i can do if this tv thing does not work out.

what do they do that is different younger --? for more, i'm speaking to heather wake. heather, thanks for giving me a job for an afternoon. >> for a short time. >> i have this webvan tattoo across my chest. >> i am intrigued by this. before, they are the poster child for me for the dotcom era. it went to nothing because it was this huge infrastructure play. yours is different. >> very different. we do not have the infrastructure that webvan had. smartphones are prevalent now. people can make orders via smartphone, ipad. and the shoppers use the smartphones. to do grocery shopping for the customers. that is a big change. >> i cannot tell you how many venture capitalists have set in that chair and said, i am sick

of hearing about the uber of that and this. but this is really an uber-like model. where both the consumer and the provider is using the same technology. >> right, and is very convenient for the customer to place the order from the local stores that they know in their neighborhood and have it pulled by one of our personal shoppers who is doing this as a job. supplemental to something else they are doing on the side. >> where the interesting things going through the experience in the store, certain items did not scan correctly or some were not available in the size requested. it really involved that sort of person who knows what they are doing shopping for the goods and services. was that a learning experience for the company? >> yeah, i think so. we had to ensure we are training our personal shoppers in such a way that we are providing a great experience for our customers, but also picking the

right produce or being able to make decisions for the customers as the personal shopper, to make sure the customer is getting what they are looking for and a great interaction at the end of the day. >> i learned how to find out if a pear is ripe. did you know this? you poke it at the bottom. >> we teach our shoppers that, as well as buying a ripe avocado, all sorts of things. >> you charge a price for an item based on what you charge. not based on the store. does instacart ever take a loss on an item? >> right now, we are working with our partners across the board and not have differences in prices for the customers whether it be an of charge write-down charge, but there are circumstances where there are differences in prices for the customers, whether it be an up charge or a down charge. >> do you see situations where

you could take advantage of commonly ordered items and acquire those in size so you can lower the cost, or is this never going to be part of your model? >> we're looking to use a new round of funding for three different things. one is category expansion. second is geographic expansion and finally technology enhancements. that really changes the -- not really changing the model itself or how we are making money. >> category expansions? such as? >> looking beyond grocery. looking to other retailers and giving the ability to deliver items to customers within an hour. >> how do you decide what kind of categories work? why did groceries work for the fairly low ticket items depending on what you selected. why is it that grocery items worth? -- worked? >> we actually

selected one of the most obligated verticals out there. it is a way to get it off the ground. it is complicated, so it is complicated, so we would get easier along the way and better be able to serve customers and managers. >> how do you decide whether something is worth doing? >> i think it is looking at what customers would want on demand and same-day delivery. ask -- >> i was surprised. customers will reach out to our -- pick me up something for dinner. >> yeah, get dinner, special requests, anything they are looking for, and the shopper will get it for them. >> all right, thank you, instacart general manager. amazon is looking to cash in on the selling power of woody allen. we tell you about his new gig, next. ♪

>> i'm cory johnson. this is "bloomberg west." after a disappointing 2014 analysts may have reason to cheer. amazon shares were upgraded to a buy. scarlet fu breaks it down for us. scar, what's up? >> they had the worst annual performance since 2008, but that may all change. citigroup analyst mark identifies three reasons. pipeline growth remains strong. holiday sales support the fourth-quarter numbers and margins are ready to reverse the trend. in other words, the money that they spend on warehouses, video content in 2014 is not likely to get worse. it may even get better. 2014 may have been the low water margin. if you look at the margin over

the last five years, they have risen from 2011 22013. -- 2013. they stumbled last year to 6.7%. citigroup predicts margins could expand to 8.2% for this year. we wait to see how that carries out. but if you look at the past year, there is reason to be optimistic. >> optimism always blooms this time of year. thank you, scarlet. speaking of amazon -- amazon changed this week. they got attention from hollywood. they are hoping to get a lot more. the company has decided to sign four-time academy award winner woody allen to create his first-ever tv series. fresh off of the momentum from their first golden globes win over the weekend for "transparent." what kind of name is amazon making for itself? join me from los angeles, a senior media analyst. paul, it's interesting amazon had award success, because we have no idea how the business is doing of streaming the content.

>> yeah, i think this was huge for amazon. they got so much attention from the golden globes and certainly "transparent" getting the win in that category was very big. and obviously having jeffrey tambor who was incredible actor, jill soloway, who worked on "six feet under" for hbo eight or 10 years ago, they are bringing a lot of tell it the table. -- a lot to the table. and i think talent is becoming agnostic as to the platforms on which they will share their wares so to speak. woody allen is an icon, a huge name, and for amazon to get woody allen is a big deal. that raises awareness for amazon in a major way. this is an iconic director known obviously for his film work on the big screen. certainly his movies have done very well on the small screen as well. this is just a great move by amazon.

>> i wonder if it is something else actually. i wonder -- woody allen is a classic case of a director whose work some people like and most people don't. i wondered this is true some of there is room in this new distribution strategy for the long tail, the people that some people love and most people want, but the economy is there now, the economics are there now where you have more than a few channels to watch and more than a few ways to pay for them. >> that is right, and woody allen is very polarizing both in front of the camera and behind the camera in his personal life. no question that platforms like amazon take a chance by putting woody allen in charge of a tv show, something his never really done before, and they have the bandwidth, they have the breadth of audience where this just

brings attention to them. i think it is part of bringing attention to their roster. if you look at for instance netflix and "orange is the new black" and "house of cards," hbo's original series -- now these entities have the resources and now have the bench of talent to create this original content that is getting lauded obviously by the critical side of things, the critical community for the work and such. -- awards. this is to me, for amazon, a great step toward building that roster of having great actors, writers, directors, producers. in the name woody allen, like him or don't like him, he is a big name and everyone knows who he is. it heightens the awareness of amazon for sure. >> and maybe the golden globes were really a game changer for them. paul, thank you.

ibm broke the record for the most patent filings in a single company. more than 7500 new patents last year. what does it mean for the revenue growth? that is next. ♪

>> you are watching “bloomberg west,” where we focus on innovation technology and the future of business. i am cory johnson. ibm has topped the patent charts again. there were 7500 patents granted to the company for the second -- the 22nd straight year. they have been granted more patents than any other company. ibm has been the worst-performing stock on the dow for two years in a row. patents good, company bad? our guest joining us right now. he is a patent attorney. from new york.

alex, let me start with you. patents are a big focus for the company. what benefit do they get? >> they have been a big focus for 22 years. traditionally, patents are thought to signal where future innovation might come. new ideas, new things where they're staking a claim and using their big research forced to figure out what is next. the big question like you said, is can they use these patents to write these constantly falling sales they have had for the past three years? the report next week. whether they are making products their customers want, it is a big question. >> chris, let me ask you. i want to say invention, good r&d, good, technology, good. what are the real value of these patents from ibm?

>> it is largely a numbers game when you're talking about 7500 patents. that is a heck of a lot of patents in one year. keep in mind that the u.s. patent office granted a record amount also. some degree of in-line with the growth you are seeing at the patent office. the growth in the patent said they are securing, it does serve their three main business models with respect to outgoing licensing, reducing litigation costs, and dividing design -- providing them design freedom. all three of those are served right having a large amount of patents. they are light-years ahead of the second-place finisher. there is value that is serving that. i do understand the point about the dips with respect to revenue in the last two years but largely they are bidding across a lot of different technologies. a lot of growth opportunities with respect to cloud computing and cognitive computing. and cyber security. i think the thought here is that will play dividends in the next two to five years.

>> i remember once a long time ago reporting on hewlett-packard. they told me there was tremendous pressure from the ceo to issue patents so they could put up press releases. before he felt things are ready. i look at the ibm results and wonder if we are not saying -- seeing the same thing. the emphasis is to say you have a lot of patents. >> talking to the researchers are very passionate about what they do. they're focused on creating new technology. the idea of furthering the human good by technology. but when it comes back to the top of the chain to the c -- ceo, she needs to make sure she is managing these people in a way that you are turning these new inventions, these new ideas into actual commercial products that they can sell. when you look at cloud, they look at the patents and that is

an area where they are trying to build out and they have been late in doing that. they had their own smart cloud platform. they shut that down. whether these two decades of patents have led to the kind of really big box things that they want to sell, they did go into the mainframe and some of the hardware and software they are selling. again you have to prove that , these new ideas can sell to the customers. >> i also wonder as the example twitter comes to mind. the company went public and was criticized for its lack of patent protection with fewer than a dozen patents but then they acquired hundreds of patents from, who else, ibm. >> that is right. this notion that start up companies do not need ip, or there is a movement afoot, is a little bit of a myth. even twitter itself as

anti-patent they might come in some of their talk, their actions have spoken and told a different story. from the get-go, they have been aggressively acquiring intellectual property with respect to acquisitions, 900 patents after their public offering in 2013 but a lot of applicants they have been filing in the pipeline. keep in mind that twitter is a young company coming out in 2006. the patent process itself take somewhere from three to five years from filing to issuance so a lot of those pending applications are in the pipeline and things that we will see coming forward. as far as ibm, you can expect them to be on the list because they also have a healthy pipeline of pending applications coming through the system. >> alex, you have noted that while ibm spends a lot of money on r&d in fact, the percent of , revenues, they spend less than a lot of big companies in silicon valley.

>> right. they spend about 6% of their totals a year. when you look at oracle and microsoft, they average around 13%. ibm is doing great things and they are coming out with this new invention but the criticism from investors is that where there allocating capital may be too much on these buybacks and share dividends with $19 billion in dividends in the last year and maybe more that should be going to the patent side. ibm might be challenged with that patent pipeline moving forward. you have seen some cases move through the supreme court and the patent office get more stringent on software patents. this big secret number that they -- sticker number that they are coming out with we might actually end up seeing a little bit more tightness in terms of that number as well. >> let me ask you, how does ibm use its patent in terms of litigation and pursuing their rights is patent holders? >> they are largely a defensive mechanism. as far as asserting patents the

last two years, they have not had a single case where they filed and asserted their own patents, but it has been a defensive measure. a few companies will want to lock horns because somewhere within their 50,000 active patents they could probably dig up a few that they could assert as a counterclaim. you see a much more defensive measure but for licensing efforts and companies that are going into new areas there five -- they are five years ahead of the game. years ago desktop, you could not build the desktop or portable computer without running afoul of one ibm patent. they could be chasing rainbows but it only takes one to find a pot of gold. >> we could sing "rainbow connection" together. [laughter] thank you very much. cke restaurants is turning to

technology to ramp up its business. details on what makes those burgers so yummy next on "bloomberg west." ♪

>> i am cory johnson and this is "bloomberg west." new technologies will make fast food even faster. the parent company of carl's jr., you may know them for their racy advertising or great burgers. they're teaming up with microsoft to make a self ordering kiosk. customers place their own orders and they are used in hardee's restaurants. thank you for joining us andrew. talk about this technology and

why you're doing this. >> we have -- it is windows 8.1 driving a dell 3030 touchscreen kiosk where you can go in and order yourself and you can select what you want. you can hold the pickles or add extra bacon. it is very easy to use. the microsoft technology has enabled an incredible system. it goes directly to the cook so you have eliminated the middle person who may not get your order right, how many times have you ordered a burger without pickles and gotten pickles? now it will go straight to the cook from you. people seem to enjoy the interactive nature of it. you get a higher ticket. people use credit cards and debit cards. they are enjoying playing with the technology. it becomes addictive once you're in there.

as you mentioned, the racy ads and the big delicious order -- burger brand, so we have to keep up with millenials. they want the same kind of technology they have in their lives and work and personal lives. it has been a real plus for us in the test so far. >> i do want to return to the racy ads. it is a great topic in terms of marketing. i wonder how much does this , lower costs on a percentage basis? >> given the higher orders we are getting, the higher tickets and the efficiencies that go in the restaurant we are able to allocate labor better. you get shorter wait times. consumers are not waiting as long so you can improve service and overtime, there will be , savings and labor. right now we are in a test. in about 30 restaurants. we do not have people used to using it to the extent yet where you have big labor savings. over time there could be labor savings but right now you have a

bigger ticket and you have some cost savings but not like what we will find down the road. >> i also wonder, i feel like every business in the world is being changed in some interesting behind the scenes ways by technology. for you specifically when it , comes to marketing with those ads that you are so well known for, they have turned opportunities for social media marketing or other marketing venues because of their iconic success. >> they open up interesting avenues. when we are doing technology, we are partnering with great companies like microsoft which is easy to work with. on the marketing side, one of the ways you measure in this day and age is how much your ads are being seen by people. that paid kind you get on television, there is also what is called earned media credits.

which means every earned media credit is a set of eyes that sees your ad that you do not pay for. if you were running it now, that would be some earned media credits or if it is on youtube or one of the late-night shows covers one of our ads. with an ad that is popular, you might get 100, 100 50,000 earned media credits, maybe 200,000 with a great ad. we did an ad with kate upton that had 2 billion. >> 2 billion earned media credits, what does that mean? 2 billion people saw the ad and you did not pay for the advertising itself? >> that is exactly right. outside the united states, we are in 31 countries. that really is a meaningful benefit from the way we market. >> where does this add turn -- advertisement turn itself into a technology play? is there other ways to use that technology to get more play from that ad? >> there's a lot of things we can do.

if you have the touchscreen to -- you can run your ads in the restaurant but we post them to our facebook page and we have an app that you can go to and see the ads. you really become much more facile at getting your message out to young and technology oriented people if you have got content they want to see. that is the key here. it is not like when everyone used to sit and watch "leave it to beaver." you have to have content that draws people in. the way we have done advertising, it draws those young, hungry guys into the ads. we have the content and they look for it online. they look for it every place they can find it and it has been a big benefit. >> thank you very much. companies like twitter have been central to san francisco's tech boom but is the boom good for a city like san francisco? what lessons to other cities have to learn from what is happening here in the bay area?

that story is next on "bloomberg west." ♪

>> i am cory johnson and this is "bloomberg west." there is an interesting study that says san francisco is the

top-performing u.s. city thanks in large to its booming technology economy. i spoke with the report's coauthor. i asked him what makes san francisco so special. >> you have an unique innovation echo system. this is a dense urban area, many of them immigrants with advanced degrees. engineering and software development. it is the close connectivity between universities, the business community, the r&d community, and the ability to bring ideas to the marketplace and turn them into companies. >> for a long time in the bay area you have a suburban big , company culture. you have the venture capitalists and the big pension investors giving them the money to help the people leaving to start new companies.

they have come to san francisco, startup companies like twitter and airbnb. why? >> it is part of the urban environment. these new technology savvy young workers. >> what is different now? >> the differences you have the mayor here who has been trying to promote startup growth in the city and certainly gavin newsom was trying to do that. >> and willie brown. >> and you have biotechnology here. it is very diverse. once you add different mixes in you find this cross-fertilization that occurs in there is some magic formula. it is hard to predict when and where it will happen. there is a critical mass where it goes on itself. -- it builds on itself.

san francisco has done that especially in the last five years. >> why is the growth happening in 2008 versus 1999 when there was a tremendous room, a lot of -- a tremendous boom, a lot of interest, people coming from all of the world to come to this area. >> it is largely related to the explosion in the creative side of technology as opposed to the hardware and software. there is software here but it is less -- that is still important but it is the content that you put through the pipes and the creativity that occurs when you have a critical mass of talented people in a dense urban area. >> why does this institute do that work. how is that part of the goal? >> we are trying to demonstrate the regions of the country to be economically successful. you need to be making these decisions in investment and strategically planning out how you develop your economy, your

economic base and the diversity and understand it. unless you are creating someone's technology company and tracking them from other places, you're not going to be one of the top performing economies. we're trying to aid them in understanding how these changes are affecting them and what they need to be due to be part of that. >> what is the one thing cities are reluctant to do in luring these tech companies or creating market? >> one of the biggest challenges we have seen is that there is this reluctance to look at small companies and startups is -- as being the future. what i mean is there is still a tendency for economic development -- >> if google wants to move to memphis, if two kids and a dog do not get there that is not part of the deal. >> you can bring in google or apple. you can bring the men and give -- bring them in and give them incentives but if it is two

guys and their dog and a lady, it you are probably not going to do as much to help them and that is a big obstacle. you can make headlines when you say google brings in 500 employees. you do not make headlines with two guys, a lady, and a dog. >> that was the chief research officer. it is time for the bwest byte. one number that tells us a whole lot. what is that? >> 150. the number of likes university of cambridge researchers want. to know you better than one of your family members. >> if i get hundred likes? >> it they process that and look at different personality traits. >> does that include your. --dog ? >> i'm not sure.

>> that is revealing. >> and your coworkers, it is 10. >> openness or extrovertedness. they can assess if you are an extrovert better than your coworker could based on what you like on facebook. >> i would think that my coworkers know me better than that. it is fascinating because it shows you how they should be trying to market. in fact, maybe they don't target that well. you would think they would have to be more tailored. >> they are getting better. >> great to see you. you can always get the latest headlines all the time on your phone, tablet, bloomberg.com and bloomberg radio. more "bloomberg west" tomorrow. ♪

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